Economy Watch: What’s the Consumer Attitude as Summer Ends?

Dees Stribling, Contributing Editor

Strong consumer sentiment and confidence are both good for the health of the economy, and for some real estate sectors more than others (but all of them indirectly). They’re intangible, but important metrics done monthly by different organizations — the the University of Michigan and the Conference Board, respectively. Since the U.S. economy is roughly two-thirds composed of consumers buying goods and services, even a whiff of discontent among consumers might slow economic activity down. In particularly bad cases — one only has to go back to 2008 and ’09 for an example — consumers pull into their shells, and even those who can afford to spend more choose to spend less. Retail real estate feels the brunt of sour consumer attitudes, at least at first, but eventually industrial and hotel properties suffer as well.

On Friday, the University of Michigan reported that its Consumer Sentiment Index dropped from 91.9 on August to 85.7 in September, a sharper drop than expected, and a bit worrisome, (though there’s some noise in month-over-month changes). But it’s  also true that even September’s poor showing was better than a year earlier, when the index stood at 84.6. According to the survey’s chief economist, Richard Curtin, consumers still anticipate a weaker domestic economy due to the global slowdown and are less optimistic about future growth in jobs and wages than they were a few months ago.

By contrast, the latest Consumer Confidence Consumer Confidence Index was more upbeat (and also based on a mid-August survey, before the markets took a wild ride for a week or so). The index, which had declined in July, bounced back in August, to come in at 101.5 (1985 = 100), up from 91.0 in July. The Present Situation Index increased from 104.0 last month to 115.1 in August, while the Expectations Index improved to 92.5 from 82.3 in July. Lynn Franco, the company’s director of economic indicators, chalked it up to a more “favorable appraisal of the labor market.” The respondents weren’t expecting much in the way of raises, however, an entirely rational expectation considering how little wages have gone up in recent years.

The Consumer Sentiment Index involves 500 telephone interviews in continental U.S, with 50 core questions asked. The Consumer Confidence Index is based on a survey of 5,000 households nationwide, asking about current and future prospects: current business conditions; the outlook for business conditions for the next six months; current employment conditions; the outlook for employment for the next six months; and total family income for the next six months.